Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

At September 30, 2023 and December 31, 2022, the following amounts were recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:


(Dollars in millions)	September 30, 2023		December 31, 2022
Short-term debt:
Carrying amount of the hedged item	$	(2)	$	(199)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	(2)	$	1
Long-term debt:
Carrying amount of the hedged item	$	(6,376)	$	(6,216)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	312	$	72

*Includes ($212) million and ($250) million of hedging adjustments on discontinued hedging relationships at September 30, 2023 and December 31, 2022, respectively.

Effect of derivative instruments in the Consolidated Income Statement

The total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value hedges, cash flow hedges, net investment hedges and derivatives not designated as hedging instruments are recorded and the total effect of hedge activity on these income and expense line items are as follows:


(Dollars in millions)	Total				Gains/(Losses) of Total Hedge Activity
For the three months ended September 30:	2023		2022		2023		2022
Cost of services	$	5,217	$	5,168	$	(2)	$	4
Cost of sales	$	1,419	$	1,389	$	(5)	$	35
Cost of financing	$	94	$	120	$	(3)	$	1
SG&A expense	$	4,458	$	4,391	$	(58)	$	(69)
Other (income) and expense	$	(215)	$	5,755	$	(316)	$	(189)
Interest expense	$	412	$	295	$	(15)	$	4


	Gain (Loss) Recognized in Consolidated Income Statement
(Dollars in millions)	Consolidated Income Statement Line Item	Recognized on Derivatives				Attributable to Risk Being Hedged (2)
For the three months ended September 30:		2023		2022		2023		2022
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	(33)	$	(64)	$	28	$	68
	Interest expense	(166)		(191)		139		203
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense	(141)		(186)		N/A		N/A
Equity contracts	SG&A expense	(54)		(76)		N/A		N/A
	Other (income) and expense	—		3		N/A		N/A
Total		$	(394)	$	(514)	$	167	$	271


	Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
	Recognized in OCI				Consolidated Income Statement Line Item	Reclassified from AOCI				Amounts Excluded from Effectiveness Testing (3)
(Dollars in millions)
For the three months ended September 30:	2023		2022			2023		2022		2023		2022
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(1)	$	(1)	$	—	$	—
					Interest expense	(4)		(3)		—		—
Foreign exchange contracts					Cost of services	(2)		4		—		—
Amount included in the assessment of effectiveness	101		189		Cost of sales	(5)		35		—		—
Amount excluded from the assessment of effectiveness	29		—		Cost of financing	(2)		(6)		—		—
					SG&A expense	(4)		8		—		—
					Other (income) and expense	(164)		(6)		(11)		—
					Interest expense	(11)		(18)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts	652		1,198		Cost of financing	—		—		5		5
					Interest expense	—		—		26		14
Total	$	782	$	1,387		$	(192)	$	12	$	21	$	19

(1)The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts.

(2)The amount includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period.

(3)The company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing for net investment hedges in net income each period. For cash flow hedges of foreign currency denominated debt, the amounts excluded from effectiveness testing are amortized to net income over the life of the hedging instrument.

(4)Instruments in net investment hedges include derivative and non-derivative instruments with the amounts recognized in OCI providing an offset to the translation of foreign subsidiaries.

N/A - not applicable


(Dollars in millions)	Total				Gains/(Losses) of Total Hedge Activity
For the nine months ended September 30:	2023		2022		2023		2022
Cost of services	$	15,821	$	15,915	$	(6)	$	32
Cost of sales	$	4,329	$	4,555	$	12	$	71
Cost of financing	$	297	$	314	$	(10)	$	0
SG&A expense	$	14,212	$	13,843	$	44	$	(291)
Other (income) and expense	$	(721)	$	5,921	$	(315)	$	(730)
Interest expense	$	1,202	$	903	$	(46)	$	1


	Gain (Loss) Recognized in Consolidated Income Statement
(Dollars in millions)	Consolidated Income Statement Line Item	Recognized on Derivatives				Attributable to Risk Being Hedged (2)
For the nine months ended September 30:		2023		2022		2023		2022
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	(55)	$	(76)	$	42	$	89
	Interest expense	(261)		(261)		196		305
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense	(321)		(595)		N/A		N/A
Equity contracts	SG&A expense	37		(319)		N/A		N/A
	Other (income) and expense	—		(85)		N/A		N/A
Total		$	(600)	$	(1,336)	$	238	$	395


	Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
	Recognized in OCI				Consolidated Income Statement Line Item	Reclassified from AOCI				Amounts Excluded from Effectiveness Testing (3)
(Dollars in millions)
For the nine months ended September 30:	2023		2022			2023		2022		2023		2022
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(2)	$	(3)	$	—	$	—
					Interest expense	(11)		(10)		—		—
Foreign exchange contracts					Cost of services	(6)		32		—		—
Amount included in the assessment of effectiveness	250		449		Cost of sales	12		71		—		—
Amount excluded from the assessment of effectiveness	29		—		Cost of financing	(10)		(16)		—		—
					SG&A expense	7		28		—		—
					Other (income) and expense	16		(51)		(11)		—
					Interest expense	(46)		(54)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts	564		3,118		Cost of financing	—		—		16		6
					Interest expense	—		—		75		22
Total	$	843	$	3,567		$	(40)	$	(4)	$	81	$	28

(4)Instruments in net investment hedges include derivative and non-derivative instruments with the amounts recognized in OCI providing an offset to the translation of foreign subsidiaries.

N/A - not applicable